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Net Zero: 2022 Perspective

For a third consecutive year, Eden McCallum welcomed Lord Turner to discuss what has changed over the past 12 months in the prospects for a successful shift to a world of “Net Zero” carbon emissions. He is ideally placed to do so as Chairman of the Energy Transitions Commission (ETC), a global coalition of major power and industrial companies, investors, environmental NGOs and experts working on pathways to achieving net-zero emissions by mid-century. His talk covered advances in technology, his personal take on discussions at the recent COP26 climate conference held in Glasgow in November, and the causes of the short-term energy crisis, brought into sharp focus by Russia’s invasion of Ukraine.

 

The Net Zero transition requires transforming – in a decade – the energy, food, and land use systems that took over a century to build. Are we looking at the same scale of change as the industrial revolution?

It’s big, but it’s important not to overstate it. Energy use in a modern economy is about 4% or 5% of GDP. If supplying energy in a zero carbon fashion costs 25% more, that is only 1% of GDP in 2050. When you run these figures, it is not as transformational as all that.

It is not as big as the industrial revolution, when initially 50% or 60% of everybody in our society worked in food production in agriculture, and at the end of that process it was 2%. The number of jobs that will be different after a Net Zero transition is much, much smaller. This is absolutely doable. But it is also non-trivial.

What is the current state of play in terms of carbon emissions and the path to Net Zero?

The two major contributors to “greenhouse gas” emissions are carbon dioxide (CO2) and methane (CH4). Building, transport, energy production, agriculture and land use change (e.g., deforestation) are the biggest sources of these gases. The good news is that by electrifying as much of the economy as possible, while decarbonising as much electricity production as possible, it will be possible to get to Net Zero by the middle of the century, particularly with reductions of carbon emissions in the energy, building, industrial and transport sectors.

What are the grounds for optimism on the question of decarbonising the production of electricity?

Over the past ten years there has been an amazingly rapid fall in the cost of producing electricity from wind and solar. The cost of solar has come down by about 85%, the cost of offshore wind has come down by 60%. And at auctions, prices are even lower.

We have also seen a dramatic fall in the cost of batteries over the last ten years, with falls of over 85%, and battery costs are predicted to continue to decline over the next 10 years. There have also been dramatic falls in the cost of producing “green” hydrogen from electrolysis. This could cost as little as $2 a kilogramme by 2025.

This is not a trivial matter. We are seeing technologies going through changes where we get reductions of 60%, 80%, even 90% of the cost, and of course that transforms the possibility of building a zero carbon economy at an acceptable cost.

What have been the price movements in the cost of renewables in the past year?

For the first time in over ten years, the cost of wind and solar has gone up. This is a temporary phenomenon, due to the supply chain limitations which are affecting the whole of the economy. The price of steel has gone up, and steel is needed to build wind turbine towers. The cost of shipping has gone up, so the cost of solar panels shipped from China has gone up. Relatively speaking, their costs have increased less than the cost of gas, especially in Europe. And in China, where shipping costs have not been an issue, the costs of wind turbine energy was down by 20% in 2021 and is forecast to come down by 24% this year.

We are seeing an increasing ability to produce kilowatt hours of electricity at lower cost than fossil fuels, and an increasing ability to use batteries to balance supply and demand during the day. We will increasingly see an ability to use hydrogen to balance supply and demand across the months of the year. The biggest challenge with renewable electricity systems now is not how to produce cheap electricity, but how to balance the system: what to do when the wind doesn’t blow and the sun doesn’t shine.

What progress has there been in decarbonising the “hard to abate” sectors (steel, cement, aviation, shipping)?

The Mission Possible Partnership recently produced a Net Zero steel sector transition strategy, which is suggesting a far faster move away from current technologies on the steel sector than I would have dreamed possible five years ago. The latest scenarios of what could happen are suggesting a whole series of technologies (beyond carbon capture and storage) that will come into play, including the use of green and blue hydrogen. The use of coking coal could fall by as much as 85% by 2050. Nobody would have said that five years ago. This represents a technological revolution.

The International Energy Agency (IEA) produced a report last year explaining how the energy, building, industrial and transport sectors of the world could get to Net Zero by 2050. This was an unprecedented scenario from the IEA. It involves the production of electricity being almost entirely decarbonised by 2035.

How far advanced are pledges to Net Zero carbon emissions internationally?

An increasing number of countries are making net zero pledges. The US, Europe, most of the developed world, Japan, Korea, have commitments to get to Net Zero by 2050. China has a commitment to Net Zero by 2060. Almost nobody had made those commitments five years ago. People have woken up to the dangers of the situation, and technology has improved massively.

Our biggest challenges, technologically, lie in the food system. As long as we keep eating red meat made from animals in the current fashion, we will drive deforestation and we will drive agriculture-produced methane emissions, and so far we do not have the same technological answers to that as we do in other industries.

What incentives or policies would you like to see put in place to support or encourage ordinary households and consumers to make changes?

Housing energy inefficiency (in the UK) is probably the most difficult part of the transition to Net Zero. The Treasury talks of costs of transition of maybe up to £15,000 per household in 25 million households, or 1% of GDP being invested in either heat pumps or insulation. Who is going to pay for it? It will be a struggle for those on middle and lower incomes and there will have to be government support. On a positive note, it should create around 250,000 jobs in skilled trades, supporting the UK’s levelling up agenda.

On planes, we clearly ought to subject them to carbon prices. Let’s turn the taxes we already have (air passenger transport duty) into a carbon price. At the moment that duty is undifferentiated – you pay the same whether that plane is burning fossil fuel jet fuel or a sustainable aviation fuel. We are creating no incentive for the airlines to move into sustainable fuel, and we should.

In agriculture – we ought to have nitrogen taxes. Nitrous oxide emissions from the use of fertilisers are important. I would encourage people as much as possible to move away from red meat voluntarily. And there could be subsidies and government support for the innovation in the alternatives. Taxes on red meat are not politically feasible.

What happened at COP26?

Countries make voluntary nationally determined contributions (NDCs). The aim is to limit global warming to well below 2 degrees centigrade and ideally to 1.5 degrees centigrade. But the commitments are voluntary.

Heading into COP26 the NDCs were still inadequate. The ETC report “Keeping 1.5 degrees Celsius alive” looked at two important areas. The first was methane. It is essential to drive down methane emissions from agriculture, as well as from fossil fuels and waste management processes.

The NDCs were very quiet on methane. We argued that the fossil fuel industry could get its methane emissions down by 50% by 2030. The IEA says that the vast majority of this can be done at zero cost. Agriculture and waste is more difficult, but we argued that progress is possible. And there was some progress made at COP on this.

On CO2 it was more disappointing. There was a desire among the COP leadership to tighten NDCs, and to have some countries make bigger voluntary commitments, and also to have a text agreement on bigger NDCs at the end of the COP.

So what happened? There was some progress on methane (a 10% reduction – but Russia and China were not signatories). On deforestation there were big new commitments (and some excitement), but will it be delivered? And on coal there was a big disappointment. China and India did not commit to move beyond coal.

The last 24 hours of COP involved a debate almost about one word in the agreed text: whether countries should commit to “phase out” or “phase down” coal. And it ended up as “down”. But still, this is a step forward.

On electric vehicles (EVs), I think there will be faster decarbonisation in passenger road transport than is envisaged in the NDCs. EVs are going to become cheaper to run and cheaper to buy.

On heavy industry, I think there will also be greater progress than in the NDCs. There was also a commitment in the final text that new NDCs would be brought forward next year that are compatible with the 1.5 degrees centigrade objective.

If the NDCs and the Glasgow commitments and Net Zero commitments are all met, we can get to a 1.8 degrees rise by 2100. Without the net zero commitments we are at 2.4 degrees. The IEA thinks that with current policies we are heading to 2.6 degrees. And they estimate that there is still a 10% chance of a 3.5 degrees rise. For context: 1.5 degrees is very serious, 2 degrees would be very, very serious, 3.5 is catastrophic. Humans have never lived with those kinds of temperatures.

What will happen to gas prices in the context of Russia’s invasion of Ukraine?

Even before the Ukraine invasion we had seen dramatic price increases in much of the world (not in the US, which is a domestic market). This had pushed up electricity prices, leading to much bigger energy bills in Europe especially.

Energy bills had gone up a little because of green taxes. But in 2022 bills are going to be up significantly more as a result of energy costs and supply difficulties in the LNG market.

There were lots of contributing factors to this rise: inflation across the whole economy post Covid as bottlenecks cropped up; weather effects (a cold winter last year in Europe and northern China ); big increases in energy demand in Asia and South America; a series of planned and unplanned outages; Russia prioritising domestic storage ahead of exports; the lowest wind resource for 60 years across parts of Europe; the phase out of coal and the structural decline of nuclear both produced more demand for gas.

All of this was happening before the Russian invasion, but it has brought into sharp focus European (and especially German) reliance on imported Russian gas.

How can we reduce reliance on Russian gas in a way which is compatible with our climate objectives over a five to ten year period?

At the ETC we are looking at the question and will publish a report in the coming weeks. At a high-level, there are clear win-wins; things we definitely don’t want to do; and things that are somewhere in between, where difficult trade-offs need to be made.

Clear win-wins include: immediately, massively accelerating renewable energy development in generation and in storage and flexibility; improve insulation and deploy heat pump electrification, and go faster on energy efficiency; keep all existing nuclear plants going, and extend their life as far as possible; build new nuclear if the costs are competitive (but lead times are long); and expand sustainable biomass and BECCS (bioenergy with carbon capture and storage).

Things we should definitively not do: dilute 2050 net zero commitments; put back the 2030 phase-out date for German coal; make major long term investment in oil or gas.

The difficult trade-offs stem from that fact that switching off the flow of money to Russia may also mean cutting our use of gas and burning other fuels. If Russia switches off the gas, Europe will need coal plants instead of gas plants, so should there be a short-term slowdown in coal closure? Should we make physical investments to switch sources for LNG imports, for example pivoting gas supply to the US, even though the US gas industry has high levels of methane leaks? Should we invest in existing European gas fields, for example in Norway and the UK? This would not have been an option before this latest crisis.

For now we have to maintain the momentum towards Net Zero by 2050 and recognise the huge energy security challenge we are facing in the short term.

Last year you spoke about the ‘Greta vs Elon’ debate – e.g., is economic growth per se a burden on the natural environment, so the answer has to be reduced consumption – or will technology solve everything and enable us to continue living as we do and for the developing world to increase its living standards. Have your views on the Greta vs Elon debate shifted over the past year?

In my view, in terms of the energy, building, industry and transport sectors, we do have a technological route to get to Net Zero, and once we get there, there aren’t really planetary boundaries to lithium supply, rare earth supply, the amount of land we need for solar or wind. But even in those sectors we can’t get there fast enough, so a responsible person will be doing a lot of things to reduce their emissions by behaviour change during the 2020s – keep the thermostat down, wear a jumper. Responsible people should also dramatically reduce their red meat consumption (although high quality and affordable synthetic meat will be here pretty soon).

The challenges we face are non-trivial, but absolutely solvable through a combination of technical innovation, which is happening at a far faster pace than anyone envisaged even 5 years ago, and adopting responsible consumption patterns.

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Recommended further reading from the Energy Transition Commission (ETC) and Mission Possible Partnership can be found at: https://www.energy-transitions.org/publications